Imagine that you work for OstBank, a fictional European bank, as part of the team that manages repurchase agreements with the European Central Bank (ECB). If the ECB lowers the refinancing ratefrom 2% to 1%, OstBank will borrowfrom the ECB. To execute this change, OstBank couldv the ECB. The result would bein OstBank'sreserves, prompting OstBank to makeloans. Because banks making loans lead to deposits, and deposits in the banking system are part of the money supply, a decrease in the ECB'srefinancing rate will tend tothe money supply in Europe.

A repurchase agreement with a central bank is an agreement where the central bank agrees to loan out…

Answered: Imagine that you work for OstBank, a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider a failing bank. How much is a deposit of $300,000 if the CDIC uses the payoff method? The purchase-and-assumption method? Which method is more costly to taxpayers? Using the payoff method, the $300,000 deposit is worth $ (Round to the nearest dollar) Using the purchase-and-assumption method, a deposit of $300,000 is worth $ (Round to the nearest dollar) Which method is more costly to taxpayers? Select the best answer: A. The payoff method is more costly, since taxpayers will only pay $0.10 on the dollar. B. The purchase and assumption method is more costly, because depositors receive the full value of their deposits. C. The purchase and assumption method is more costly, because depositors will refuse to keep account balances in excess of $100,000 in a single bank. D. The payoff method is more costly, since the cost to insure the fund will be lower.
c) In what three ways do commercial banks make a profit from the monetary system? (d) In Canada, what is the equivalent of the U.S. Federal Reserve? e) Suppose that the United States were to adopt a system of full-reserve banking; thatis, demand deposits would be illegal to lend out, and banks would only charge a nominalfee for safekeeping. Would this help to fix the problems that Mike Maloney layed out? Explain your answer.
Even though deposit insurance existed, the United States experienced a major financial crisis from 2007 to 2009 because: there was a run on shadow banks, which were not covered by deposit insurance. there was excess competition from other countries.
As a bank manager, you conclude that the bank has a capital shortfall and should decrease the equity multiplier (i.e., increase the capital ratio) to prevent bank failure. Which of the following is one of things you can do to manage capital adequacy of the bank? a.Acquiring more reserves through borrowing from fed funds loansb.Selling the bank's holding of mortgage-backed securities and using the proceeds to decrease liabilitiesc.Repurchasing shares of the bankd.Increasing dividend payout ratio to reduce retained earnings.
Economic conditions in Fredland have caused the demand for money to increase which has changed the nominal interest rate. If the central bank wants to counteract this change, which of the following is an appropriate open market operation to achieve that? Select one: O a. Raise the discount rate. O b. Increase taxes. O c. Decrease the reserve requirement. O d. Sell bonds. O e. Buy bonds.
What are bank assets used for? Bank liabilities are the sources of bank ________? Bank capital is the contribution of the bank's owners; it acts as a cushion against what? Banks make a profit for their owners. Measures of a bank's profitability include what four things? Banks' off-balance-sheet activities have become increasingly important in recent years. What are these two things? Banks face several types of risk in day-to-day business. List them:
When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of $1,907,570,000 and current liabilities of $1,362,550,000. a. What is the firm's current ratio? b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below 1.2? c. If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal? Question content area bottom Part 1 a. What is the firm's…
Please Make this notes clearer and perfectly written. Here is my notes: At times companies engage in repurchase agreements; are from the perspective of the borrowers. they borrow money to finance themselves short term and the value of the money they borrow whatever that value is they agreed to pay the lenders when they return the money with a higher value even if they borrow low and pay high and that difference is their cost of funding repurchase agreements repurchase agreements are always collateralized with high quality paper government securities it can also be a commodity like precious metals gold or silver repos besides the collateralization. The federal funds that's an important take away that one member of the treasury reserve system lends to another short term loans that one member of the treasury reserve system lends to another The banks have surplus reserves with our central bank some are in deficit the who the ones who are in surplus lend to the ones who are in deficit…
What is shadow banking and how does it differ from traditional retail banking? What kind of threat does shadow banking pose to the financial system? Discuss the role of shadow banking in the financial crisis of 2007-2008.
L A Moving to another question will save this response. Question 1 Which of the following statements is (are) true? (i) Bank certificates of deposits are capital market instruments. (ii) A dollar-denominated deposit at a Chinese bank located in Japan is called Eurodollar. (iii) An overnight repurchase agreement is similar to an overnight collateralized loan. O (i) and (iii) only (ii) and (iii) only (i) and (ii) and (iii) O (i) and (ii) only A Moving to another question will save this response.
Fractional reserve banking refers to a banking system in which bank loans are less than bank reserves. bank deposits are less than bank reserves. bank reserves are less than total deposits. bank reserves are only a fraction of required reserves.
Our textbook claims that one of the key services banks provide is maturity intermediation: what exactly does this mean? (Choose an answer from the list below; only one is correct.) Reference: Chapter 11 and/or Chapter 1 Banks borrow money from their younger customers and lend it to their older customers. Banks gather small deposits and use them to make large investments, allowing small investors to collectively buy large assets. Banks are funded with deposits that they promise to return on demand but use them to make long-term loans, which creates a mismatch in the maturities of their assets & liabilities.

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